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Another Term for Mr. Greenspan

Most economists believe Alan Greenspan is more responsible for the economy's spectacular performance than Congress, Presidents Bush and Clinton or any other identifiable factor. Under his leadership the Federal Reserve Board has driven inflation and unemployment down to 30-year lows. Mr. Greenspan is widely regarded as one of the most successful chairmen in the history of the Fed. Yesterday President Clinton wisely nominated him to a fourth term, ending disruptive speculation that he might decide to appoint someone else.

When Mr. Greenspan took over the Fed in 1987, unemployment was above 6 percent and inflation exceeded 4 percent. Twelve years later, the inflation rate -- the one economic outcome for which the Fed is entirely responsible -- has fallen to about 2 percent, about as low as many economists deem advisable. Interest rates have fallen significantly, and unemployment is at its lowest level in decades, around 4 percent.

Mr. Greenspan has been both lucky and very astute. He did not produce the low foreign oil prices or higher productivity growth that have occurred during his tenure. That was merely good fortune. But by setting clear objectives and exercising smart judgment, he let the economy take full advantage of both trends.

Most important, he settled on one clear and unvarying objective. His goal is low, steady inflation, and he has not allowed the Fed to become sidetracked by focusing on foreign exchange rates, stock prices or the growth rate of the economy.

Next, points out Mickey Levy, chief economist at the Bank of America, he has exercised timely judgment. In the early 1990's, when the banks were in atrocious financial condition, he manipulated the money supply to keep interest rates, and therefore their borrowing costs, low. When the banks recovered in 1994, he raised rates back to sustainable levels. In 1996 and 1997, when the economy grew faster than the Fed's economic models thought possible without igniting inflation, Mr. Greenspan did not crack down. He chose instead to wait until the threatened inflation actually appeared. It never did, so he had given the economy leeway to produce millions of jobs that few economists thought possible.

In 1998 the Fed reduced rates to inoculate the economy against the financial crisis sweeping across Asia. Then last year it raised rates once the Asian threat dissolved. The upshot of these successful decisions is that investors trust Mr. Greenspan. They do not overreact -- driving interest rates higher and aborting recoveries -- at the first sign of inflationary pressure because they trust that he will keep inflation in check.

Mr. Greenspan did not create the labor markets that have allowed unemployment to fall to its lowest levels since the 1960's without setting wages ablaze. But he was wise enough to sit back while unemployment fell to levels that most economists thought unsafe and that would have driven most of his predecessors to take anti-growth actions. He thereby discovered, and proved to the world, that the American economy could do better than nearly everyone thought possible. Yesterday Mr. Clinton assured that his careful stewardship of the economy will continue.

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A version of this editorial appears in print on January 5, 2000, on Page A00020 of the National edition with the headline: Another Term for Mr. Greenspan. Today's Paper|Subscribe